The Recession That Wasn't

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If it is indeed possible that a recession can be preceded by a quarter of positive GDP growth (and logic dictates that this is true), then it should be noted that the bar for which a recession be declared needs to be raised, especially if, as NBER puts it, there are multiple factors that must be considered. GDP declined, but is not negative. Unemployment declined. Industrial production and wholesale retail sales have not slowed. Therefore, the economy is not in recession. However, the last three items are very tricky to track, so we're left with GDP.
But I like your hedge on your bet. It's entirely possible that you will be wrong, but because the NBER can go back and revise the numbers, it's entirely possible that they can back at some future date and revise the numbers and call a 2008 a "recession", therefore you can win your bet. Pretty sly, but then again, you ARE an economist. ;-)

Chris of AZ 11:47AM May 12, 2008

Statistics are a dirty thing. They are never accurate when they are being used to describe a complex item, i.e. the U.S. economy. However, I am glad that instead of relying on economists, statisticians and actuaries who have spent years and decades of trying to capture the essence of the U.S. economy we still have people like you who will try to undo that in an attempt to make your party look better. Sorry, it ain't gonna work, but nice try.

Chris of AZ 11:30AM May 12, 2008

JP, you have changed your tune: You originally declared that because Advanced GDP came in at +0.6%, we could not be in a recession. The data I offered showed that this is not the case. Recessions can and do start with positive GDP.
While I cannot say for sure this is a recession, I certainly see plenty of evidence suggesting that is a strong possibility. You cannot say for sure that 0.6% = no recession, tho you also have evidence to back up your claims.
We will find out soon enough, and hence I propose the following bet: If a recession is eventually declared, and the start and finish points includes any month in the first or second quarter 2008, I win. If not, you win.
Loser buys dinner for 4, at the restaurant of winners choice (winner's and loser's and spouses included). Price is inclusive of dinner, wine, car valet and tip.
Is this a bet?

Barry Ritholtz of NY 6:30PM May 10, 2008

Daniel,
Actually, the nominal rates on credit cards today are about 18% unless you go into penalty rates for being late (but you can get 9.9% long term). This is almost exactly what the rates were decades ago (though I don't remember if they had penalty rates back then.) The savings rates were 3 or 4%, which you have to shop for to get today. Some online banks such as Ing.com and Emigrant Direct.com were close to 5% a little while ago, but now their rates are dropping.
I wouldn't blame this on the fed. The banks set rates according to market conditions they predict for the time period that corresponds to the loan type. That's why mortgages don't go down all the way with the recent low fed rates (fed rates can change in the short term while mortgages are figured as 7 to 10 year commitments). The prime rate hasn't followed completely either.
The banks must figure that the 0% offers draw in accounts that turn into 18% in a high percentage of cases. Other than that I don't see how they can do it, but I accept their offers and am thankful for a free market system that provides all sorts of deals to choose from.
If you over regulate the marketplace to prevent high price deals, then the businesses don't have the flexibility to also offer the "loss leader" deals. I prefer only laws against fraud, and let the informed customers refuse bad deals and accept the good ones.
Also, what is typically a bad deal might be the only way a poor credit risk can get a loan, but maybe the bad deal is still useful for that person at that time. If you over regulate, that person may not have any loan to choose from .

Ken in Camarillo of CA 1:44PM May 10, 2008

Thanks, too, Ken (above) for pointing out that "deals" are out there on credit card interest rates for those of good credit willing to shop around and move, as needed, to the next "introductory" offer from some other lender.
My point about credit card rates being "usery" by banks is that the AVERAGE rate on cards is ridiculously high compared to the AVERAGE rate paid to depositors for use of the money. There is no precedent, really, for the size of these spreads and the fantastic amount of money being extracted from individuals and poured into corporations by these methods. And your Federal Reserve is what makes it happen that way.

Daniel David of NM 10:36AM May 10, 2008

Inflation is understated by 3-4% (via ignoring energy and food costs), GDP is overstated by 2-3% (via understating inflation), unemployment is understated by 3-4% (via fictional "birth-death" calculations). Most importantly, the stock market is overstated by 40-50% due to the devaluation of the US dollar over the past ten years. And most of the profits of this bull(bull****?) market turn out to have been financial 'services' that we now understand to have been a derivatives-based house of cards that isn't even in the first inning of unwinding.
So, what do you call it when the US economy is relentlessly losing ground against its competitors? What do you call it when our standard of living has peaked and is sliding precisely at a time when the demographic wave is peaking into its retirement years?
Wait until you see how this reflects in the markets once they realize that there is no other bubble to reflate the economy like the housing bubble did after the dot.com bubble burst. The markets are already in a profit recession, Mr. Pethokoukis, and the second half will have to be KILLER to justify the current S&P PE, let alone growth from here.
I'm a rock climber and your comment ("But so far the data say 'no.'") reminds me of the joke about the climber in mid-fall who says, "so far, no problem."

PD Quig of CA 9:29AM May 10, 2008

The NBER can define "recession" any way it wishes, but in popular usage, what we are trying to get at is whether the output of the economy is expanding or contracting in *real* terms. This requires an adjustment for inflation. Nobody would argue, for instance, that Zimbabwe has grown 1000% just because the prices of everything made there have climbed by 1000%, right?
Now, if you deflate GDP with an artificially low measure of inflation like the current figures do, then you end up with an artificially high measure of output. Add that to the inventory buildup, and the conclusion that can be fairly drawn from the most recent figures is not that great. Negative, actually.
End of the financial world? No. But closer to the real world experience of many (but not all) Americans? You bet.

brian of MS 9:18AM May 10, 2008

Yes, stocks are not good for money that must be spent within 3 to 5 years. Annuities are a reasonable alternative for older people: you can usually get a rate higher than anyone ever has gotten on a savings account, and the rate is locked in.
You are clueless about the "usurious rates of credit cards". If you had a decent credit record during the last 5 years, you've been deluged with 0% credit card offers. The correct strategy for those years has been to have a HELOC for backup, and use 0% credit cards for any financing of medium term debt (3 year time frame). If you ever have a 0% offer ending without a new offer to roll it into, you pay it off with the HELOC until the next 0% offer comes along.
There are always suppliers who would like to overcharge ignorant or desperate customers. It is up to the individual to show some due diligence and discipline to keep themselves in advantageous circumstances. Such is the case in credit cards. You can be a dummy and bury yourself in 20+% debt, but if you have been careful in your use of debt, maintained a good credit history, and kept informed of "what's out there", this has been a time of unusually high availability of low priced money.

Ken in Camarillo of CA 6:30AM May 10, 2008

So, if a person experiences difficulty finding a job (who knows if it's due to declining job market, unrealistic expectations, or plain laziness), ALL people are having difficulty finding a job?
That's hardly proof we are in a recession. People see what they want to see. And, what I see are some people who want to see recession...

RogerCfromSD of CA 1:46AM May 10, 2008

Thanks, mockmook, for pointing out we should all be in stocks----together with their risks THAT ARE NOT AS APPROPRIATE FOR OLD FOLKS AS ADVERTISED. That's also the line your government is giving you while placing the Fed Funds rate at 2% while inflation is at 5% or more and your national debt has nearly doubled under a single president.
Bank borrowing rates (from you) are artificially low while bank lending rates on credit cards are artificially high with corporations pocketing an outlandish spread.
The answer to this is not "stocks"---it is honest reporting of inflation and honest monetary and fiscal policy, something you won't see until Republicans are out of power. As it is, your government has been managing for the stock market, not for the stability of the dollar. Don't believe me? Look at oil, gold and foreign currencies.

Daniel David of NM 12:31AM May 10, 2008